TNK to revive Samotlor oil field

May 28, 2001 02:00 AM

TNK CEO Simon Kukes says the Samotlor field has not been optimised economically. When the Samotlor oil field was
first discovered in 1966, it was proclaimed as a triumph over the capitalistic imperial powers of the West. Now, the
legendary find in western Siberia, which at one point produced more than half of the Soviet Union's oil, is being
revived. And at the centre of this push is Tyumen Oil CEO Simon Kukes.
"People treat me with a mixture of admiration and jealously," Kukes said. When Kukes -- a US citizen with 16 years of
experience as an executive at Amoco -- came to the helm just before the 1998 financial crisis, he knew that turning
production around at Samotlor would be a monumental task. The field hit is peak of 1.1 bn barrels in 1980, and
extraction has been on the decline ever since. In Soviet times, engineers pumped water into the field to make the oil
come out quicker, but this led to Samotlor's premature aging as the water mixed with the remaining crude.
"It was not optimisedeconomically," Kukes said. "Those were the days of 'go-go' Soviet-style economics. There were
some positive aspects to it, but overall, it was not done very well." Tyumen Oil, or TNK, announced earlier this year
it is was facing "the urgent need to increase production," and in 2001, it would invest $ 1.5 bn in Nizhnevartovsk,
the region where Samotlor is located. TNK has also partnered up with US-based oil service company Halliburton to
bring Western technology to the field's operations.

Samotlor's riches have also inspired fighting among Russia's oligarchs. The struggle for Sidanko-owned Chernogorneft,
which was left a shell company after a bankruptcy auction of its oil-producing assets to TNK, made international
headlines when British Petroleum hotly challenged the sale. BP owns a 10 % stake in Sidanko.
Yukos CEO Mikhail Khodorkovsky said the conflict reflected age-old grudges between Vladimir Potanin, president of the
Interros holding company, which owns 44 % of Sidanko, and Mikhail Fridman, chairman of the supervisory board of
directors of Alfa, which effectively controls TNK in alliance with the Access/Renova group.
Production at Samotlor, including the disputed Chernogorneft asset, is about 450,000 bpd. Kukes hopes to raise it to
500,000 barrels by next year and then fall back a little to stay at a flat production rate for the 15 years experts
say the field has left. Kukes encountered many roadblocks along the way.
"You have to understand, there was a big resistance to Halliburton," he said. "It's the way human beings are if you
decide to bring in a new company with some ideas. The Western way is more expensive, and the quality control is much
better. The Russian route has its own technological advantages. It takes time to change peoples' minds, and you won't
have success until you change from the bottom up."

Before Kukes recruited Halliburton, formerly run by US Vice President Dick Cheney, he concentrated on cutting costs.
In a transition economy, this translates into spinning offthe hospitals, kindergartens, restaurants and resort areas
that were earlier used exclusively by the workers and their families.
"You can't imagine all the stuff that was there," Kukes said. "It took us five months to figure out what we even had.
"The sad part was laying off people. We did it very quickly. Forty-two thousand in 20 to 25 months."
However, increasing Samotlor's output will only slightly alleviate TNK's production problems. Kukes is looking to
Uvat, in the southern part of the Tyumen region, which holds 2 bn barrels of proven reserves. The company also has
plans to expand into Kazakhstan and wants to continue participating in the development of the Kovykta gas condensate
field, located not far from Lake Baikal. TNK holds 9 % of Rusia Petroleum, which owns the license to develop Kovykta
and is looking to raise that to 20 %.
Kukes also hinted that TNK was seriously considering other areas to explore, but smoothly evaded revealing its exact
location, the only clue being that its "outside of western Siberia."